The Government’s Green Investment Gimmick
Today’s FT has an important story – it looks like the much touted Green Investment Bank is actually going to be a modest Green Investment Fund, or more accurately, a Green Investment Gimmick.
According to the report, the ‘Bank’ will be granted a £1bn budget (with another £1bn coming from asset sales) to distribute. This £2bn of new investment is meant to help plug the green investment gap in the UK. But as the FT notes, the energy sector alone needs green investment of at least £200bn over the next ten years.
A proper Green Investment Bank, one that actually operated as bank, could make a real impact here.
If it were initially capitalised at £5bn it could easily borrow £50bn over the next few years to lend to fund new green investment whilst retaining a very strong balance sheet and being conservatively over-capitalised.
The initial £5bn could come from a variety of sources – new funding from the Bank of England (i.e. a form of QE that directly supports the economy), a one off levy of the banks or indeed from privatisation revenues when Osborne sells off RBS and Lloyds.
£50bn of new investment in the form of loans from a new bank (and new bank which would be able to reinvest the interest earned) would make a meaningful impact on the UK’s green sector. £2bn in a fund is yet another ‘miserable little compromise’.
So, why is the Treasury against a Bank?
Apparently because the money it borrowed would count as public debt and so inflate the debt/GDP ratio.
I find this objection essentially meaningless; it comes from fetishising public liabilities and ignoring assets.
Last week the ONS published new figures on public debt including the liabilities of RBS and Lloyds as publicly owned banks for the first time.
This measure (which got almost no mainstream media coverage) increased the UK public debt by £1.3 trillion pounds. But as this £1.3bn is more than offset by assets of the nationalised banks and as the UK government is not directly responsible for the interest payments arising, this is of academic rather than practical interest.
The debts of a proper Green Investment Bank would be the same, whilst technically adding to the UK’s public debt, any increase would be offset by assets in the form of interest earning loans and the Treasury would not be responsible for servicing this debt. It’s an accounting exercise rather than a burden.
And all of the above analysis ignores the knock on effects of £50bn of new investment in the UK economy in terms of jobs created, welfare bills reduced and income and corporation taxes paid.
A proper Green Investment Bank, ideally alongside a new State Investment Bank to fund infrastructure, would be an important step both in rebalancing the UK economy and in helping to combat global imbalances. It’s a shame we are being fobbed off with a gimmick.